561.333D3/1671
The Assistant Chief of the Commodities Division (Cale) to the Chargé in Colombia (Daniels)
Dear Paul: …
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So far as I know, there is very little sentiment in the Department for terminating the Coffee Agreement at present, if it has to be done on our initiative. Pete Collado17 and I believe, however, that there are a number of reasons for permitting the Agreement to lapse, provided the onus for doing so were to be borne by some other country.
I see very little reason at present for continuing the quota provisions of the Agreement, which I consider to be its central feature. It is my belief that maintaining these provisions will inevitably involve the United States Delegate in differences of opinion with delegates from the producing countries. For example, as you know, sentiment in the Board was quite divided concerning the quota increase voted on April 20. I believe that developments, since the Agreement was negotiated, have made it difficult, if not impossible, to reconcile Brazilian and Colombian points of view regarding changes in the quotas.
Some of the members of the coffee trade in this country are of the view that coffee producers are lining up solidly with a view to forcing an increase in the ceiling prices in this country. Although such a development would, of course, have been possible if there had been no Agreement, I am sure that the Coffee Agreement has made it easier for the coffee producing countries to get together on matters such as this, should they so desire. Should the question of a price increase come to a showdown, it appears to me that there are only two possible ways in which it might be resolved, unless the producers are willing to sell freely at present prices. First, the Office of Price Administration might raise the ceiling price on both green and roasted coffee. Since coffee is a cost of living item, such a development might be seized upon by interests in this country in support of other price and wage increases. This would be a difficult situation to face from the viewpoint of domestic politics. Second, the Office of Price Administration might decide not to increase coffee prices, regardless of the consequences. Pursuing this course of action might lead directly to a resumption of rationing in this country.
Although it can be argued that it is not the quotas which are primarily responsible for present price difficulties, I am sure that there [Page 148] would be a tendency in this country to blame the Agreement if either of the aforementioned conditions developed. Also, the Agreement by restricting purchases in countries which are willing to sell additional coffee at present prices, does tend to make the position of the OPA more difficult. In addition, there seems to me to be an inconsistency between continuance of the quotas, which were initially looked upon as a means of increasing coffee prices, and maintenance of this Government’s price stabilization policy.
Although the coffee surplus problem was acute at the time the Agreement was negotiated, and although coffee production in the past has for many years been characterized by surplus production, it does not appear to me that the outlook is one of surplus production for the next few years. In fact, there seems to be a definite shortage of mild coffees at the present time, and, with the opening up of the European market, I am not at all sure that there will be more than enough coffee in the world to meet total coffee requirements.
The foregoing, and my belief in the policy of holding trade restrictions to a minimum, are the principal reasons why I believe that discontinuance of the quota provisions under the Coffee Agreement at this time would be beneficial, provided the initiative for action leading to discontinuance were taken by some country other than the United States.
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With kindest personal regards, I am
Sincerely yours,
- Emilio G. Collado, Chairman of the Inter-American Coffee Board.↩